Exotic Instruments

In short, the Euro seems ready to explode as high as 1.34 in the following months, but ECB is trying hard to prevent it. The Americans say never trade against the FED, let’s see if that is true for ECB as well.

■ Market: Foreign Exchange

■ Assets: EURUSD, USD-X

■ EURUSD Today: 1.2350

■ Basic Forecast: EURUSD will range between 1.19-1.26 for several weeks, and then it will move considerably higher, targeting 1.34

■ Trade Signals: (i) Long Positions if EURUSD retraces to 1.1900, or (ii) Long positions if EURUSD manages to cross above 1.12600-1.2650 in the weekly chart

EURUSD OUTLOOK -EU and the US back in a Currency War

There are concerns by the European Central Bank that a continued USD weakness could have strong negative consequences for Europe’s economic growth. On the other hand, the American Administration is unwilling to respond to the increasing inflationary concerns. Note that in the first quarter of 2018, the American GDP is expected to grow 4.5% (annualized).

In this context, a new currency war breaks between FED and ECB. These are the basic actions of each side:

□ FED ACTIONS (Goal is a weaker dollar to push growth further):

(i) Still implements an Expansionary Fiscal Policy, which is financed by Treasury debt

(ii) Not responding to inflationary concerns (there was a recent 2.9% rise in annualized average hourly earnings)

(iii) Not responding to the further widening of US Trade Deficit

(iv) Feels comfortable as GDP growth is expected at record levels in the 1st quarter of 2018

(v) Threats of further protectionism –Trump Administration imposed trade tariffs on solar panels in January 2018